Item 7. Management’s Discussion and Analysis of the Results of Operations
Forward-Looking Statements
Statements in the following discussion and
throughout this report that are not historical in nature are “forward-looking statements.” You can identify forward-looking
statements by the use of words such as “expect,” “anticipate,” “estimate,” “may,”
“will,” “should,” “intend,” “believe,” and similar expressions. Although we believe
the expectations reflected in these forward-looking statements are reasonable, such statements are inherently subject to risk and
we can give no assurances that our expectations will prove to be correct. Actual results could differ from those described in this
report because of numerous factors, many of which are beyond our control. These factors include, without limitation, those described
under Item 1A “Risk Factors.” We undertake no obligation to update these forward-looking statements to reflect
events or circumstances after the date of this report or to reflect actual outcomes. Please see “Forward-Looking Statements”
at the beginning of this Form 10-K.
The following discussion of our financial
condition and results of operations should be read in conjunction with our financial statements and the related notes thereto and
other financial information appearing elsewhere in this Form 10-K. We undertake no obligation to update any forward-looking statements
in the discussion of our financial condition and results of operations to reflect events or circumstances after the date of this
report or to reflect actual outcomes.
Overview
We are a specialty pharmaceutical
company that seeks to develop and commercialize our product principally for use in the acute/intensive care hospital setting. Our
current product candidate is intravenous (IV) Tramadol, for the treatment of post-operative acute pain. Under the terms of certain
agreements described herein, we have an exclusive license to develop and commercialize IV Tramadol in the United States. In 2016,
we completed a pharmacokinetic (PK) study for IV Tramadol in healthy volunteers as well as an end of phase 2 (EOP2) meeting with
the U.S. Food and Drug Administration (FDA). In the third quarter of 2017, we initiated a Phase 3 development program of IV Tramadol
for the management of post-operative pain. In December 2019, we submitted a New Drug Application (NDA) for IV Tramadol and received
a Complete Response Letter (CRL) from the FDA in October 2020. In February 2021, we resubmitted the NDA for IV Tramadol. The FDA
assigned a Prescription Drug User Fee Act (PDUFA) goal date of April 12, 2021 for the resubmitted NDA for IV Tramadol. To date,
we have not received approval for the sale of our product candidate in any market and, therefore, have not generated any sales
revenue from our product candidate.
Recent Developments
On November 12, 2018,
we entered into a Stock Purchase and Merger Agreement (SPMA) with InvaGen Pharmaceuticals, Inc. (InvaGen), and Madison Pharmaceuticals
Inc. (Merger Sub), pursuant to which we agreed to the sale of the Company in a two-stage transaction, the details of which are
summarized below. Recently, InvaGen has communicated to us that it believes two Material Adverse Effects (as defined in the SPMA)
have occurred, which raise substantial doubt as to whether or not the merger will be consummated.
In October 2020, InvaGen
communicated to us that it believes a Material Adverse Effect (as defined in the SPMA) has occurred due to the impact of the COVID-19
pandemic on potential commercialization and projected sales of IV Tramadol. Additionally, in connection with the resubmission of our NDA
in February 2021 (details of which are below), InvaGen communicated to us that it believes the proposed label for IV Tramadol would also
constitute a Material Adverse Effect on the purported basis that the proposed label under certain circumstances would make the product
commercially unviable, and in addition that the indication that the FDA approves may fail to satisfy a condition precedent to InvaGen’s
obligation to consummate the second stage closing of the SPMA. While we disagree with InvaGen’s assertions, it is possible InvaGen
could attempt to avoid its obligation to consummate the merger, terminate the SPMA, and/or pursue monetary claims against us.
Over the past several
months, we have communicated with InvaGen relating to its assertions that Material Adverse Effects have occurred. Nevertheless,
InvaGen has communicated to us its desire to consider all options on the proposed merger, including the option to not consummate
the merger. As a result, the possible timing and likelihood of the completion of the merger are uncertain, and, accordingly, there
can be no assurance that such transaction will be completed on the expected terms, anticipated schedule, or at all.
Background
On June 26, 2017, we completed
an initial public offering (IPO) of our common stock, resulting in net proceeds of approximately $34.2 million after deducting
underwriting discounts, and other offering costs.
We used the proceeds
from our IPO to initiate our first Phase 3 trial of IV Tramadol in patients with moderate-to-severe pain following bunionectomy,
which had its first patient dosed in September 2017. In May 2018, we announced the study met its primary endpoint and all key secondary
endpoints.
In December 2018, we initiated
the second Phase 3 trial in patients with moderate-to-severe pain following abdominoplasty upon successful completion of the bunionectomy
study. In June 2019, we announced the study met its primary endpoint and all key secondary endpoints.
In December 2017, we initiated
an open-label safety study, which was completed during the second quarter of 2019. The results showed that IV Tramadol is well-tolerated
with a side effect profile consistent with known pharmacology.
In December 2019,
we submitted an NDA pursuant to Section 505(b)(2) of the Federal Food, Drug and Cosmetic Act (FDCA). In February 2020, the FDA
accepted our NDA submission and set a PDUFA goal date of October 10, 2020. On October 12, 2020, we announced that we had received
a CRL from the FDA regarding our NDA. In November 2020, we had a Type A Meeting with the FDA to discuss issues raised in the CRL.
On February 12, 2021, we resubmitted the NDA to the FDA for IV Tramadol. The NDA resubmission follows the receipt of official minutes
from a Type A meeting with the FDA, which was conducted following receipt of the CRL. The NDA resubmission included revised language
relating to the proposed product label and a report relating to terminal sterilization validation. The FDA assigned a PDUFA goal
date of April 12, 2021 for the resubmitted NDA for IV Tramadol.
44
On November 12, 2018,
we entered into the SPMA with InvaGen pursuant to which InvaGen agreed to purchase, for $35 million, common shares representing
33.3% of the fully diluted capitalization of the Company (the Stock Purchase Transaction) and subsequently acquire the remaining
issued and outstanding capital stock of the Company for $180 million, subject to certain reductions, in a reverse subsidiary merger
transaction (the Merger Transaction). Pursuant to the terms and subject to the conditions set forth in the SPMA, InvaGen will, at
second closing, hold 100% of the issued and outstanding equity interests of the Company. Consummation of the Merger Transaction is
conditioned upon, among other things, FDA approval of IV Tramadol by April 30, 2021, its labeling and scheduling and the absence of any Risk
Evaluation and Mitigation Strategy restrictions in effect with respect to IV Tramadol, as well as the filing and expiration of any
waiting period applicable to the acquisition under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, which
filing both parties completed on March 12, 2021.
The aggregate consideration
to be paid by InvaGen under the SPMA is $215 million in cash (a portion of which was already paid in connection with the Stock
Purchase Transaction as described below), subject to certain potential reductions, which InvaGen intends to have sufficient immediately
available funds to pay. In addition, we are subject to certain lock-up restrictions and agreed not to (subject to customary exceptions),
during the period commencing at the signing of the SPMA until the Merger Transaction, issue, buy, sell, or otherwise subject to
a security interest, pledge, hypothecation, mortgage or lien, any securities of the Company.
The SPMA was approved by a majority of our stockholders,
including a majority of our non-affiliated stockholders, at our special shareholder meeting on February 6, 2019. On February 8,
2019, the Company and InvaGen consummated the Stock Purchase Transaction whereby InvaGen acquired 5,833,333 shares of our common
stock at $6.00 per share for total gross consideration of $35.0 million, representing a 33.3% stake in our capital stock on a fully
diluted basis.
As described above, in October
2020, InvaGen communicated to us that it believes a Material Adverse Effect (as defined in the SPMA) has occurred due to the impact of
the COVID-19 pandemic on potential commercialization and projected sales of IV Tramadol, which means it is possible InvaGen could attempt
to avoid its obligation to consummate the second stage closing under the SPMA, terminate the SPMA, and/or pursue monetary claims against
us. We disagree with InvaGen’s assertion that a Material Adverse Effect has occurred and we have advised InvaGen of our position.
Additionally, in connection with the resubmission of our NDA in February 2021, InvaGen communicated to us that it believes the proposed
label for IV Tramadol under certain circumstances would constitute a Material Adverse Effect (as defined in the SPMA) on the purported
basis that the proposed label under certain circumstances would make the product commercially unviable, and in addition that the indication
that the FDA approves may fail to satisfy a condition precedent to InvaGen’s obligation to consummate the second stage closing of
the SPMA. We have notified InvaGen that we disagree with InvaGen’s assertions. Nevertheless, InvaGen may seek to avoid its
obligation to consummate the second stage closing under the SPMA, terminate the SPMA, and/or pursue monetary claims against us.
Over the past several months,
we communicated with InvaGen relating to its assertions that Material Adverse Effects have occurred. Nevertheless, InvaGen has communicated
to us its desire to consider all options on the proposed merger, including the option to not consummate the merger. This indicates that
InvaGen may attempt to avoid its obligations under the SPMA to consummate the merger, terminate the SPMA, and/or pursue monetary claims
against Avenue. As a result, the possible timing and likelihood of the completion of the merger are uncertain, and, accordingly, there
can be no assurance that such transaction will be completed on the expected terms, anticipated schedule, or at all. During the pendency
of any dispute regarding these matters, we may be, and so long as the SPMA remains in place we will be, prohibited from engaging in a
change-of-control transaction, selling our rights to IV Tramadol, or effecting an equity or debt financing, in each case without the
prior written consent of InvaGen.
In the event that we do not
receive FDA approval for IV Tramadol by April 30, 2021, InvaGen will have the right to terminate the SPMA and will have no further obligations
to consummate the second stage closing under the SPMA. In the event that InvaGen does not exercise its right to terminate the SPMA, certain
restrictions relating to financings and strategic alternatives could exist through October 31, 2021, the time at which we can terminate
the SPMA. In the event of termination of the SPMA, InvaGen will retain certain rights pursuant to the Stockholder’s Agreement between
us and InvaGen. These rights exist as long as InvaGen maintains at least 75% of the common shares acquired in the first stage closing.
Certain actions relating to equity issuances and changes to capital stock are restricted without the prior written consent of InvaGen
during this time.
Our net loss for the years ended December 31,
2020 and 2019 was approximately $5.2 million and $25.9 million, respectively. As of December 31, 2020, we had an accumulated deficit
of approximately $73.3 million. Substantially all our net losses resulted from costs incurred in connection with our research and
development program of IV Tramadol and from general and administrative costs associated with our operations.
We expect to continue to incur research and development
costs and increased general and administration related costs and incur operating losses for at least the next several years as
we develop and seek regulatory approval for IV Tramadol in the U.S.
We may need to obtain
additional capital through the sale of debt or equity financings or other arrangements to fund our operations, research and development
activity or regulatory approval activity; however, there can be no assurance that we will be able to raise needed capital under
acceptable terms, if at all. The sale of additional equity may dilute existing stockholders and newly issued shares may contain
senior rights and preferences compared to currently outstanding shares of common stock. Issued debt securities may contain covenants
and limit our ability to pay dividends or make other distributions to stockholders. If we are unable to obtain such additional
financing, future operations would need to be scaled back or discontinued.
We are a majority controlled
subsidiary of Fortress. For related party transactions, see Note 4.
Avenue Therapeutics, Inc.
was incorporated in Delaware on February 9, 2015. Our executive offices are located at 1140 Avenue of the Americas, Floor 9, New
York, NY 10036. Our telephone number is (781) 652-4500, and our email address is info@avenuetx.com.
Critical Accounting Policies and Use of Estimates
Our discussion and
analysis of our financial condition and results of operations are based on our financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The preparation of these
financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing
basis, we evaluate our estimates and judgments, including those related to accrued expenses and stock-based compensation. We
base our estimates on historical experience, known trends and events and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of
assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under
different assumptions or conditions.
Research and Development
Research and development
costs are expensed as incurred. Advance payments for goods and services that will be used in future research and development activities
are expensed when the activity has been performed or when the goods have been received rather than when the payment is made. Upfront
and milestone payments due to third parties that perform research and development services on our behalf will be expensed as services
are rendered or when the milestone is achieved. Costs incurred in obtaining technology licenses are charged to research and development
expense if the technology licensed has not reached technological feasibility and has no alternative future use.
45
Research and
development costs primarily consist of personnel related expenses, including salaries, benefits, travel, and other related expenses,
stock-based compensation, payments made to third parties for license and milestone costs related to in-licensed products and technology,
payments made to third party contract research organizations for preclinical and clinical studies, investigative sites for clinical
trials, consultants, the cost of acquiring and manufacturing clinical trial materials, costs associated with regulatory filings
and patents, laboratory costs and other supplies.
Costs incurred in
obtaining technology licenses are charged to research and development expense if the technology licensed has not reached commercial
feasibility and has no alternative future use. The licenses purchased by us require substantial completion of research and development,
regulatory and marketing approval efforts in order to reach commercial feasibility and has no alternative future use. Accordingly,
the total purchase price for the licenses acquired are reflected as research and development — licenses acquired
on our Statement of Operations.
Stock-Based Compensation
We expense stock-based compensation to employees,
consultants and board members over the requisite service period based on the estimated grant-date fair value of the awards. Stock-based
awards with graded-vesting schedules are recognized on a straight-line basis over the requisite service period for each separately
vesting portion of the award.
The assumptions used
in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties
and the application of management’s judgment.
Income Taxes
No income tax expense or benefit was recognized
in the accompanying financial statements. Our deferred tax assets are comprised primarily of net operating loss carryforwards.
We maintain a full valuation allowance on our deferred tax assets since we have not yet achieved sustained profitable operations.
As a result, we have not recorded any income tax benefit since our inception.
Results of Operations
Comparison of the Years Ended December 31, 2020 and 2019
For The Years Ended Change
December 31, December 31,
Operating expenses:
Research and development - licenses acquired - 1,000 (1,000 ) (100 %)
Research and Development Expenses
For the years ended December
31, 2020 and 2019, research and development expenses were $2.9 million and $22.2 million, respectively. The $19.3 million decrease
primarily reflects decreases of $13.4 million in clinical trial costs associated with the completion of the abdominoplasty study
in June 2019, $1.3 million in clinical trial costs associated with the completion of the safety study during the second quarter
of 2019 and $3.4 million associated with the submission of our NDA in December 2019. There were also decreases of $0.6 million
in personnel costs, $0.3 million in non-cash stock compensation and $0.2 million in consulting costs.
We expect our research
and development activities to continue as we develop our existing product candidate, reflecting costs associated with the following:
• employee-related expenses;
46
• the cost of acquiring and manufacturing clinical trial materials; and
• costs associated with non-clinical activities, and regulatory approvals.
Research and Development Expenses – Licenses Acquired
For the years ended December
31, 2020 and 2019, research and development expenses – licenses acquired were $0 and $1.0 million, respectively. The $1.0
million expense in 2019 represents the milestone payment due to our licensor upon submission of our NDA.
General and Administrative Expenses
General and administrative
expenses consist principally of professional fees for legal and consulting services, market research, personnel-related costs,
public reporting company related costs and other general operating expenses not otherwise included in research and development
expenses. We expect our general and administrative costs to continue as we seek potential regulatory approval and potential commercialization
of our product candidate.
For the years ended December
31, 2020 and 2019, general and administrative expenses were $2.4 million and $3.1 million, respectively. The $0.7 million decrease
primarily reflects decreases of $0.8 million for non-cash stock compensation, $0.1 million in personnel costs and $0.1 million
for commercial marketing preparation costs. These decreases were partially offset by an increase of $0.3 million for legal costs.
Interest Income
Interest income was $62,000
and $0.4 million for the years ended December 31, 2020 and 2019, respectively. The decrease in interest income was due to the cash
used in operations.
Liquidity and Capital Resources
We have incurred substantial
operating losses since our inception and expect to continue to incur significant operating losses for the foreseeable future and
may never become profitable. As of December 31, 2020, we had an accumulated deficit of $73.3 million. We have used the funds from
our IPO and from the InvaGen share purchase to finance our operations and will continue to use the funds primarily for general
corporate purposes, which may include financing our growth and developing our product candidate.
In the event that
IV Tramadol is approved by the FDA, this triggers $5.0 million in milestone payments, to which the Company currently does not have
sufficient funding. In the event that IV Tramadol is not approved by the FDA, the Company believes that its cash and cash equivalents
should be sufficient to fund its operating expenses through the end of the third quarter of 2021. We will need to secure additional
funds through equity or debt offerings, or other potential sources. We cannot be certain that additional funding will be available
on acceptable terms, or at all. These factors individually and collectively raise substantial doubt about our ability to continue
as a going concern.
In addition to the foregoing,
based on current assessments, we do not expect any material impact on our development timeline and our liquidity due to the worldwide
spread of the COVID-19 virus (except as may be implicated by the alleged Material Adverse Effect claimed by InvaGen). However,
we are continuing to assess the effect on our operations by monitoring the spread of COVID-19 and the actions implemented to combat
the virus throughout the world. We will also continue to assess the alleged Material Adverse Effect claimed by InvaGen.
Cash Flows for the Years Ended December 31, 2020 and 2019
For The Years Ended
December 31,
Total cash (used in)/provided by:
Investing activities (1,000 ) -
Financing activities - 32,333
Net (decrease) increase in cash $ (5,613 ) $ 6,074
Operating Activities
Net cash used in operating
activities was approximately $4.6 million for the year ended December 31, 2020, primarily comprised of our $5.2 million net loss
and decrease in operating assets and liabilities of $0.2 million, partially offset by $0.7 million in share based compensation.
Net cash used in operating
activities was approximately $26.3 million for the year ended December 31, 2019, primarily comprised of our $25.9 million net loss
and decrease in operating assets and liabilities of $2.2 million, partially offset by $1.8 million in share based compensation.
47
Investing Activities
Net cash used in investing
activities for the year ended December 31, 2020 was $1.0 million and consisted of the milestone payment paid to our licensor pursuant
to our NDA submission.
Net cash provided by investing
activities for the year ended December 31, 2019 was $0. We purchased $5.0 million six months certificates of deposits in May 2019
and it matured in November 2019.
Financing Activities
Net cash provided by financing
activities for the year ended December 31, 2019 was $32.3 million which was from the proceeds of our issuance of shares to InvaGen
in connection with the SPMA.
Recently Adopted Accounting Standards
See Note 2 to the financial statements for
a full description of recent accounting pronouncements including the respective expected dates of adoption and expected effects
on results of operations and financial condition.
Item 8. Financial Statements and Supplementary Data.
The information required
by this Item is set forth in the financial statements and notes thereto beginning at page F-1 of this Annual Report on Form 10-K.
Not applicable.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures.
As of December 31, 2020, management carried out, under the supervision and with the participation of our principal executive
officer and principal financial officer, an evaluation of the effectiveness of the design and operation of our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Our disclosure controls and procedures are
designed to provide reasonable assurance that information we are required to disclose in the reports that we file or submit under
the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable rules and forms.
Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of December 31,
2020, our disclosure controls and procedures were effective.
Management’s Report on Internal Control
over Financial Reporting. Our management is responsible for establishing and maintaining adequate internal control over financial
reporting (as defined in Rule 13a-15(f) or Rule 15d-15(f) under the Exchange Act). Our management assessed the effectiveness of
our internal control over financial reporting as of December 31, 2020. In making this assessment, our management used the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway Commission, known as COSO, in Internal Control-Integrated
Framework (2013). Our management has concluded that, as of December 31, 2020, our internal control over financial reporting was
effective based on these criteria.
Changes in Internal Control Over Financial
Reporting. There were no changes in our internal control over financial reporting during the most recent fiscal quarter that
have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls.
Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure
controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system,
no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control
system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits
of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been
detected.
Item 9B. Other Information
None.
48
PART III
Item 10. Directors, Executive Officers and Corporate Governance
OUR DIRECTORS
The following
biographies set forth the names of our current directors and director nominees, their ages, the year in which they first
became directors, their positions with us, their principal occupations and employers, any other directorships held by them
during the past five years in companies that are subject to the reporting requirements of the Securities Exchange Act of 1934
(the “Exchange Act”), or any company registered as an investment company under the Investment Company Act of
1940, as well as additional information, all of which we believe sets forth each director nominee’s qualifications to
serve on the Board. There is no family relationship between and among any of our executive officers or directors. On November
12, 2018, we entered into a Stock Purchase and Merger Agreement (the “SPMA”) with InvaGen and Madison
Pharmaceuticals Inc., pursuant to which InvaGen purchased common stock representing 33.3% of the Company for $35 million. In
connection with the execution and delivery of the SPMA, and as described above, we entered into a Stockholders Agreement
pursuant to which, among other things, InvaGen obtained the right to nominate three directors to the Company’s seven
member Board. In February 2019, InvaGen exercised its right to nominate a director to the Board with Dr. Gogtay who’s
bio is described below. In August 2019, InvaGen exercised its right to nominate a second director, Ms. Ingram whose bio is
described below. Additionally, InvaGen has the right to appoint an independent director to the Company’s Board. InvaGen
previously appointed Thomas G. Moore as an independent director; however, effective December 31, 2020, Mr. Moore resigned
from his position as a member of the Company’s Board and Audit and Compensation Committees. After giving effect to Mr.
Moore’s resignation, the Company’s Audit Committee no longer consists of three independent members as required by
Nasdaq Listing Rule 5605(c)(2)(A). Except as described herein, there are no arrangements or understandings
between any of our executive officers or directors and any other person pursuant to which any of them are elected as an
officer or director.
Name Age Position Director Since
Lindsay A. Rosenwald, M.D. 65 Executive Chairman of the Board of Directors 2015
Lucy Lu, M.D. 46 President, Chief Executive Officer, and Director 2015
Neil Herskowitz 64 Director 2015
Jay Kranzler, M.D., PhD 63 Director 2017
Garrett Ingram 55 Director 2019
Jaideep Gogtay, M.D. 54 Director 2019
Lindsay A. Rosenwald, M.D. — Executive
Chairman of the Board of Directors
Dr. Rosenwald, 65, has served as our Executive
Chairman of the Board of Directors since inception. Dr. Rosenwald also serves as Chairman, President and Chief Executive Officer
of Fortress Biotech, Inc., a director of Mustang Bio, Inc., and a director of Checkpoint Therapeutics, Inc. Since November 2008,
Dr. Rosenwald has served as Co-Portfolio Manager and Partner of Opus Point Partners Management, LLC,
an asset management firm in the life sciences industry, which he joined in 2009. Prior to that, from 1991 to 2008, he served as
the Chairman of Paramount BioCapital, Inc. The Board believes that because Dr. Rosenwald, over the last 24 years, has acted as
a biotechnology entrepreneur and has been involved in the founding and recapitalization of numerous public and private biotechnology
and life sciences companies, he is exceptionally qualified to serve on our Board as Executive Chairman. Dr. Rosenwald received
his B.S. in finance from Pennsylvania State University and his M.D. from Temple University School of Medicine.
Lucy Lu, M.D. — President, Chief
Executive Officer, and Director
Dr. Lu, 46, has been our President and Chief
Executive Officer since inception. From February 2012 to June 2017, Dr. Lu was the Executive Vice President and Chief Financial
Officer of Fortress Biotech, Inc. Prior to working in the biotech industry, Dr. Lu had 10 years of experience in healthcare-related
equity research and investment banking. Additionally, Dr. Lu was a member of the Board of Directors of Veru, Inc. from 2016 –
2018, and has served as a member of the Board of Directors of Iventia Healthcare Limited since 2018. From February 2007 through
January 2012, Dr. Lu was a senior biotechnology equity analyst with Citigroup Investment Research. From 2004 until joining Citigroup,
she was with First Albany Capital, serving as Vice President from April 2004 until becoming a Principal of the firm in February
2006. Dr. Lu holds an M.D. degree from the New York University School of Medicine and an M.B.A. from the Leonard N. Stern School
of Business at New York University. Dr. Lu obtained a B.A. from the University of Tennessee’s College of Arts and Science.
We believe that Dr. Lu is qualified to serve on our Board due to her leadership and management experience, her understanding of
biopharmaceutical companies, and her extensive knowledge of our business and industry.
Neil Herskowitz
Mr. Herskowitz, 64, joined our Board of Directors
in August 2015 and has served as the Chairman of our Audit Committee since September 2016. Mr. Herskowitz has served as the managing
member of the ReGen Group of companies, located in New York, since 1998, which include ReGen Capital Investments LLC and Riverside
Claims Investments LLC. He has also served as the President of its affiliate, Riverside Claims LLC, since June 2004. Additionally,
Mr. Herskowitz served as a Board member of National Holdings, Inc. from 2016 – 2019, and has served as a Board member of
Mustang Bio, Inc. and Checkpoint Therapeutics, Inc. since 2015. Mr. Herskowitz received a B.B.A. in Finance from Bernard M. Baruch
College in 1978. The Board believes, based on Mr. Herskowitz’s over 16 years of Audit Committee and Board experience in the
biotech industry, that Mr. Herskowitz is uniquely qualified to serve as a member of our Board and as the Chairman of our Audit
Committee.
49
Jay Kranzler, M.D., PhD
Dr. Kranzler, 63, joined our Board of Directors
in February 2017. Dr. Kranzler has been a Founder, Chief Executive Officer (“CEO”), Board Member, and Advisor to leading
life science companies for over 30 years. He is currently acting as Executive Chairman of Perception Neuroscience, a company that
he co-founded, a regenerative medicine company, and is a Board Member of Pastorus and ImmunoBrain Checkpoint, all companies focused
on developing therapeutics for psychiatric or neurological disorders. Dr. Kranzler started his career at McKinsey & Company
where he helped establish the Firm’s pharmaceutical practice. He served as CEO of Cytel Corporation, a company focused on
the development of immunomodulatory drugs. Following Cytel, Dr. Kranzler became the CEO of Cypress Bioscience, where he was credited
for the development of SavellaTM (milnacipran) for the treatment of fibromyalgia. Dr. Kranzler was also Vice President, Head
of Worldwide External R&D Innovation and Strategic Investments at Pfizer. During his career, Dr. Kranzler has developed drugs,
medical devices, as well as diagnostics, and is the inventor on over 30 patents. Dr. Kranzler graduated from Yale University School
of Medicine with MD and PhD degrees with a focus in psychopharmacology. We believe that Dr. Kranzler is qualified to serve on our
Board due to his management experience, his service as an executive of biopharmaceutical companies and his knowledge of our business
and industry.
Jaideep Gogtay, M.D.
Dr. Gogtay, 54, joined our Board of Directors
in February 2019. Since 1994, he has been working with Cipla Ltd., a leading global pharmaceutical company, and he currently serves
as their Global Chief Medical Officer. He has closely been involved in the development and introduction of several drugs in various
therapeutic fields. He was involved in setting up the Chest Research Foundation. This Foundation is now an independent research
center dedicated to conducting research in the field of respiratory medicine. He has participated and spoken at several national
and international forums and has been actively involved in educational activities. Dr. Gogtay completed his medical graduation
(M.B., B.S) from Grant Medical College and SirJJ Group of Hospitals in Mumbai. He then obtained his M.D, in Pharmacology from Seth
GS Medical College and KEM Hospital. Based on Dr. Gogtay’s pharmaceutical industry experience, the Board believes that Dr.
Gogtay has the appropriate set of skills to serve as a member of the Board.
Garrett Ingram
Ms. Ingram, 55, has served as a member of our
Board of Directors since August 2019. She currently serves as the President and Chief Executive Officer at Cipla Therapeutics,
Inc. Prior to her new role at Cipla Therapeutics, Inc., Ms. Ingram served as Chief Marketing Officer at MannKind Corporation, based
in California. In addition, she has served in roles as Senior Vice President, Managed Markets at Dexcom and Vice President, Head
of Market Access at Sanofi, where she had responsibility across four of the U.S. Business Units: Diabetes & Cardiovascular,
General Medicines, Sanofi Genzyme Specialty Care, and Sanofi Pasteur from 2014 to 2016. Prior to joining Sanofi, she held the position
of Vice President of Market Access Strategy at Bristol Myers Squibb, where she led the access, reimbursement, patient affordability
and emerging customer strategy teams across the portfolio of diabetes, RA, cardiovascular, oncology, immunology, neuroscience and
pipeline assets. Ms. Ingram holds a Bachelor of Science degree from East Carolina University, a Master’s Degree in public
health and community education from the University of South Carolina and has completed multiple post graduate studies at Wharton
School of Business.
CORPORATE GOVERNANCE
During 2020, our Board held six meetings and
took one action by unanimous written consent.
Audit Committee
The Audit Committee currently consists
of Neil Herskowitz and Jay Kranzler, M.D., PhD. Mr. Herskowitz serves as the Chairperson of the Audit Committee.
The Audit Committee was formed on May
15, 2017 and held four meetings during the fiscal year ended December 31, 2020 and took action by one unanimous written consent.
The duties and responsibilities of the Audit Committee are set forth in the Charter of the Audit Committee which was recently reviewed
by our Audit Committee. Our Audit Committee determined that no revisions needed to be made to the charter at this time. A copy
of the Charter of the Audit Committee is available on our website, located at www.avenuetx.com. Among other matters, the duties
and responsibilities of the Audit Committee include reviewing and monitoring our financial statements and internal accounting procedures,
the selection of our independent registered public accounting firm and consulting with and reviewing the services provided by our
independent registered public accounting firm. Our Audit Committee has sole discretion over the retention, compensation, evaluation
and oversight of our independent registered public accounting firm.
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The SEC and Nasdaq have established rules
and regulations regarding the composition of audit committees and the qualifications of audit committee members. Our Board of Directors
has examined the composition of our Audit Committee and the qualifications of our Audit Committee members in light of the current
rules and regulations governing audit committees. Based upon this examination, our Board of Directors has determined that each
member of our Audit Committee is independent and is otherwise qualified to be a member of our Audit Committee in accordance with
the rules of the SEC and Nasdaq.
Additionally, the SEC requires that at
least one member of the Audit Committee have a “heightened” level of financial and accounting sophistication. Such
a person is known as the “audit committee financial expert” under the SEC’s rules. Our Board has determined that
Neil Herskowitz is an “audit committee financial expert,” as the SEC defines that term, and is an independent member
of our Board of Directors and our Audit Committee.
Effective December 31, 2020, our audit
committee is no longer in compliance with Nasdaq Listing Rule 5605(c)(2)(A). On January 6, 2021, we received a letter from Nasdaq
noting us of this non-compliance. The letter also acknowledged that the Listing Rules provide for a cure period in order for us
to regain compliance until the earlier of the Company’s next annual meeting of stockholders or December 31, 2021 (or, by
June 29, 2021, if such meeting is held before June 29, 2021).
Compensation Committee
The Compensation Committee was formed
on May 15, 2017. The Compensation Committee did not hold any meetings during the fiscal year ended December 31, 2020 but took action
by three unanimous written consents. The Compensation Committee currently consists of Jay Kranzler, M.D. PhD, with Dr. Kranzler
serving as Chairman. The duties and responsibilities of the Compensation Committee are set forth in the Charter of the Compensation
Committee. A copy of the Charter of the Compensation Committee is available on our website, located at www.avenuetx.com. As discussed
in its charter, among other things, the duties and responsibilities of the Compensation Committee include annually reviewing and
approving corporate goals and objectives relevant to the compensation of our Chief Executive Officer, reviewing and approving,
or making recommendations to our Board of Directors with respect to, the compensation of our Chief Executive Officer and our other
executive officers, overseeing an evaluation of our senior executives, and overseeing and administering our cash and equity incentive
plans. The Compensation Committee applies discretion in the determination of individual executive compensation packages to ensure
compliance with the Company’s compensation philosophy. The Chief Executive Officer makes recommendations to the Compensation
Committee with respect to the compensation packages for officers other than herself. The Compensation Committee may delegate its
authority to grant awards to certain employees, and within specified parameters under the Avenue Therapeutics, Inc. 2015 Incentive
Plan (the “2015 Incentive Plan”), to a special committee consisting of one or more directors who may but need not be
officers of the Company. As of February 28, 2021, however, the Compensation Committee had not delegated any such authority. The
Board may engage a compensation consultant to conduct a review of its executive compensation programs in 2021. The Committee did
not engage a compensation consultant in 2020.
Nasdaq has established rules and regulations
regarding the composition of compensation committees and the qualifications of compensation committee members. As a controlled
company, we are not required to have a compensation committee composed entirely of independent directors. However, our Board of
Directors has examined the composition of our Compensation Committee and the qualifications of our Compensation Committee members
in light of the current rules and regulations governing compensation committees. Based upon this examination, our Board of Directors
has determined that each member of our Compensation Committee is independent and is otherwise qualified to be a member of our Compensation
Committee in accordance with such rules.
Nominating Process
We do not currently have a nominating
committee or any other committee serving a similar function. Director nominations are approved by a vote of a majority of our independent
directors as required under the Nasdaq rules and regulations. Although we do not have a written charter in place to select director
nominees, our Board of Directors has adopted resolutions regarding the director nomination process. We believe that the current
process in place functions effectively to select director nominees who will be valuable members of our Board of Directors.
We identify potential nominees to serve
as directors through a variety of business contacts, including current executive officers, directors, community leaders and stockholders.
We may, to the extent they deem appropriate, retain a professional search firm and other advisors to identify potential nominees.
We will also consider candidates recommended
by stockholders for nomination to our Board. A stockholder who wishes to recommend a candidate for nomination to our Board must
submit such recommendation to our Corporate Secretary, Joseph Vazzano, at our offices located at 1140 Avenue of the Americas, Floor
9, New York, New York 10036. Any recommendation must be received not less than 50 calendar days nor more than 90 calendar days
before the anniversary date of the previous year’s annual meeting. All stockholder recommendations of candidates for nomination
for election to our Board must be in writing and must set forth the following: (i) the candidate’s name, age, business address,
and other contact information, (ii) the number of shares of common stock beneficially owned by the candidate, (iii) a complete
description of the candidate’s qualifications, experience, background and affiliations, as would be required to be disclosed
in the proxy statement pursuant to Schedule 14A under the Exchange Act, (iv) a sworn or certified statement by the candidate in
which he or she consents to being named in the proxy statement as a nominee and to serve as director if elected, and (v) the name
and address of the stockholder(s) of record making such a recommendation.
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We believe that our Board as a whole should
encompass a range of talent, skill, and expertise enabling it to provide sound guidance with respect to our operations and interests.
Our independent directors evaluate all candidates to our Board by reviewing their biographical information and qualifications.
If the independent directors determine that a candidate is qualified to serve on our Board, such candidate is interviewed by at
least one of the independent directors and our Chief Executive Officer. Other members of the Board also have an opportunity to
interview qualified candidates. The independent directors then determine, based on the background information and the information
obtained in the interviews, whether to recommend to the Board that the candidate be nominated for approval by the stockholders
to fill a directorship. With respect to an incumbent director whom the independent directors are considering as a potential nominee
for re-election, the independent directors review and consider the incumbent director’s service during his or her term, including
the number of meetings attended, level of participation, and overall contribution to the Board. The manner in which the independent
directors evaluate a potential nominee will not differ based on whether the candidate is recommended by our directors or stockholders.
We consider the following qualifications,
among others, when making a determination as to whether a person should be nominated to our Board: the independence of the director
nominee; the nominee’s character and integrity; financial literacy; level of education and business experience, including
experience relating to biopharmaceutical companies; whether the nominee has sufficient time to devote to our Board; and the nominee’s
commitment to represent the long-term interests of our stockholders. We review candidates in the context of the current composition
of the Board and the evolving needs of our business. We believe that each of the current members of our Board (who are also our
director nominees) has the requisite business, biopharmaceutical, financial or managerial experience to serve as a member of the
Board, as described above in their biographies under the heading “Our Board of Directors.” We also believe that each
of the current members of our Board has other key attributes that are important to an effective board, including integrity, high
ethical standards, sound judgment, analytical skills, and the commitment to devote significant time and energy to service on the
Board and its committees.
We do not have a formal policy in place
with regard to diversity in considering candidates for our Board, but the Board strives to nominate candidates with a variety of
complementary skills so that, as a group, the Board will possess the appropriate talent, skills and expertise to oversee our business.
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OUR EXECUTIVE OFFICERS
Executive Officers
Our current executive officers are as follows:
Name Age Position
Lucy Lu, M.D. 46 President, Chief Executive Officer and Director
Joseph Vazzano 37 Chief Financial Officer and Principal Financial Officer
No executive officer is related by blood,
marriage or adoption to any other director or executive officer. To read more about Dr. Lu, please see her description under “OUR
DIRECTORS”.
Joseph Vazzano — Chief Financial Officer and
Principal Financial Officer
Mr. Vazzano joined the Company in August
2017 as our Vice President of Finance and Corporate Controller. Effective February 8, 2019, the Board appointed Mr. Vazzano as
the Company’s Chief Financial Officer. Prior to joining Avenue, Mr. Vazzano served as Assistant Corporate Controller at Intercept
Pharmaceuticals, Inc., a publicly-traded biotechnology company, which he joined in 2016. While at Intercept, Mr. Vazzano helped
grow the finance and accounting department during Intercept’s transition from a development-stage company to a fully integrated
commercial organization. Prior to joining Intercept, Mr. Vazzano served as the Assistant Controller at Pernix Therapeutics, a publicly-traded
specialty pharmaceutical company, where he successfully built an accounting and finance team after the closure of the South Carolina
office location. From 2010 to 2015, he held various roles of increasing responsibility in finance and accounting at NPS Pharmaceuticals,
a publicly-traded biotechnology company acquired by Shire Pharmaceuticals in 2015. He began his professional career with KPMG,
LLP, where he served as a senior auditor. Mr. Vazzano has a Bachelor of Science degree in Accounting from Lehigh University and
is a Certified Public Accountant in the State of New Jersey.
Code of Business Conduct and
Ethics
We have adopted a Code of Ethics, or the
Code, which applies to all of our directors and employees, including our principal executive officer and principal financial officer.
The Code includes guidelines dealing with the ethical handling of conflicts of interest, compliance with federal and state laws,
financial reporting, and our proprietary information. The Code also contains procedures for dealing with and reporting violations
of the Code. We have posted our Code on our website, located at www.avenuetx.com.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange
Act requires our directors, executive officers and persons who own more than 10% of the shares of our common stock to file an initial
report of ownership on Form 3 and changes in ownership on Form 4 or Form 5 with the SEC. Such officers, directors and 10% stockholders
are also required by SEC rules to furnish us with copies of any Forms 3, 4 or 5 that they file. The SEC rules require us to disclose
late filings of initial reports of stock ownership and changes in stock ownership by our directors, executive officers and 10%
stockholders. Based solely on a review of copies of the Forms 3, 4 and 5 furnished to us by reporting persons and any written representations
furnished by certain reporting persons, we believe that during the fiscal year ended December 31, 2020, all Section 16(a) filing
requirements applicable to our directors, executive officers and 10% stockholders were completed in a timely manner except for
one Form 4 filing for Neil Herskowitz.
Item 11. Executive Compensation
As an emerging growth company,
we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public
companies that are not emerging growth companies. These include, but are not limited to, reduced disclosure obligations regarding
executive compensation in our proxy statements, including the requirement to include a Compensation Discussion and Analysis, as
well as an exemption from the requirement to hold a non-binding advisory vote on executive compensation. We have elected to comply
with the scaled disclosure requirements applicable to emerging growth companies. Our only executive officers, who we refer to as
our “named executive officers” or our “NEOs” are Lucy Lu, M.D., our Chief Executive Officer, and Joseph
Vazzano, our Chief Financial Officer.
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Summary Compensation Table
The following table sets
forth information concerning compensation paid by us to our NEOs for their services rendered to us in all capacities during the
years ended December 31, 2020 and 2019:
(1) Reflects 401(k) company contributions.
Narrative to Summary Compensation Table
Employment Agreement with Dr. Lu
On June 10, 2015, we entered into an Employment
Agreement with Lucy Lu, M.D. to serve as our Interim President and Chief Executive Officer upon the completion of our initial public
offering at an annualized salary of $395,000. Dr. Lu’s Employment Agreement became effective on June 26, 2017, and she became
our President and Chief Executive Officer. Dr. Lu’s salary for 2020 and 2019 was $431,627 and $419,055, respectively. Under
the terms of Dr. Lu’s Employment Agreement, Dr. Lu’s base salary may be reduced only in connection with a company-wide
decrease in executive compensation. Dr. Lu is also eligible to receive an annual discretionary bonus, not to exceed 50% of her
base salary, if certain financial, clinical development, and/or business milestones are met in the discretion of Board of Directors.
Such milestones are established annually by mutual agreement between Dr. Lu and the Board of Directors.
Dr. Lu’s employment with us is at
will and may be terminated by us at any time and for any reason. On November 12, 2018, we amended our Employment Agreement with
Dr. Lu. Under the terms of the Amended Employment Agreement, if we terminate Dr. Lu’s employment without cause (as defined
in the Employment Agreement) or if Dr. Lu resigns her employment for good reason (as defined in the Employment Agreement), Dr.
Lu will be entitled to receive the following:
If Dr. Lu’s employment is terminated
due to her death or complete disability (as defined in the Employment Agreement), she shall be entitled to receive the following:
Employment Agreement with Mr. Vazzano
Mr. Vazzano’s salary for 2020 and
2019 was $206,000 and $200,000, respectively. As described in our letter agreement with Mr. Vazzano, Mr. Vazzano is eligible to
receive an annual bonus of up to 25% of his base salary, as determined by the Company in its discretion based upon factors including
corporate and individual performance. If Mr. Vazzano’s employment is terminated by the Company without “cause”
or by Mr. Vazzano following the relocation of his primary place of work to a different location that is greater than 40 miles
from his home in Morristown, New Jersey, then he will be entitled to receive severance pay equal to six months’ salary,
payable over a six-month period. Mr. Vazzano is eligible to participate in the Company’s employee benefit plans and programs,
subject to the terms and conditions thereof.
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Annual Incentive Bonus
In 2020, Dr. Lu was eligible to earn an
annual bonus equal of up to 50% of her base salary plus additional compensation related to certain stretch goals. In 2020, Mr.
Vazzano was eligible to earn an annual bonus equal of up to 25% of his base salary plus additional compensation related to certain
stretch goals. Dr. Lu’s and Mr. Vazzano’s bonus opportunities for 2020 were based upon the Company’s performance
against pre-established corporate goals and objectives, which included a combination of clinical and regulatory goals related to
our product as well as other corporate goals including stretch goals and were also based on the second stage closing with InvaGen.
The corporate performance goals and objectives
used to determine Dr. Lu’s and Mr. Vazzano’s bonuses for 2020 were as follows:
These goals and objectives were not achieved
and accordingly Dr. Lu and Mr. Vazzano were paid 0% of their target bonus amount. The actual amounts paid to the executives pursuant
to their annual cash incentive awards and bonuses are reported in the “Summary Compensation Table” as “Non-equity